One of the most popular shorts on the street a few years ago was enabled by scraping simple SEC filings.
Lending Club’s notes are registered with the SEC and therefore need to be reported. These filings are available on the company website and SEC filings. Lending Club’s revenue is directly tied to new loan issuance, as it earns a 1% spread on every loan - therefore new loan issuance is a very important metric for the company. In early 2015, LC became a popular HF short due to declining loan volume which could be calculated before earnings by scraping these reports.
“Quantamental Analysis” has received a bad rap lately, as detractors claim that securities do not move with new esoteric data, and this data is usually filled with noise. However, as we have consistently have shown on Volmanac, a diligent analyst can use new data sets to generate alpha and more importantly reduce risk in the investing process.
There is a section in the book, “Dear Chairman” which describes how in 1926 Ben Graham found financial information on Northern Pipeline in ICC reports and realized the company was sitting on a mountain of cash and securities worth more than the entire company. He wrote one of the first shareholder letters in history to the board in an attempt to have the company make a special dividend of $90/share.
The Author, Jeff Gramm, reminds the reader that when this occurred, fundamental analysis was viewed as almost a joke, everyone “knew” that securities only moved based on rumors and trading activities, and therefore why should fundamental analysis be important? This feel similar to the current sentiment related to alternative data analysis to evaluate securities - this strategy is not intended to replace fundamental analysis, but rather to add an additional layer of information which the rest of the market is not looking at in attempt to create a more fluid view of a company between reporting periods and potentially reduce an asset’s risk profile by estimating or calculating important metrics before earnings releases.
While there is a lot of bad data and noise attempting to pass as alternative data currently, we believe we are still in the early innings using alternative data in evaluating investments, and there will be a lot of money made for investors who discover new data sets and use them creatively.
You May Also Be Interested In
Current Topical Distressed Names